Corporate taxation and the quality of research and development

Christof Ernst, Katharina Richter-Weiss and Nadine Riedel

No 13-010, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: This paper examines the impact of tax incentives on corporate research and development (R&D) activity. Traditionally, R&D tax incentives have been provided in the form of special tax allowances and tax credits. In recent years, several countries moreover reduced their income tax rates on R&D output (patent boxes). Previous papers have shown that all three tax instruments are effective in raising the quantity of R&D related activity. We provide evidence that, beyond this quantity effect, corporate taxation also distorts the quality of R&D projects, i.e. their innovativeness and revenue potential. Using rich data on corporate patent applications to the European patent office, we find that a low tax rate on patent income is instrumental in attracting innovative projects with a high earnings potential and innovation level. The effect is statistically signficant and economically relevant and prevails in a number of sensitivity checks. R&D tax credits and tax allowances are in turn not found to exert a statistically significant impact on project quality.

Keywords: corporate taxation; patent quality; micro data (search for similar items in EconPapers)
JEL-codes: H3 H7 J5 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-acc, nep-eur, nep-ino, nep-ipr, nep-pr~, nep-ppm, nep-pub and nep-tid
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Citations: View citations in EconPapers (26)

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Related works:
Journal Article: Corporate taxation and the quality of research and development (2014)
Working Paper: Corporate Taxation and the Quality of Research and Development (2013)
Working Paper: Corporate taxation and the quality of research and development (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:13010

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